Yahoo Finance Canadian 'cash flow machine' Birchcliff Energy sees shares fall
Shares of Birchcliff Energy (BIR.TO) fell on Friday, as concerns about rising costs at the Canadian mid-sized oil and gas producer appeared to overshadow a special dividend announced after Thursday's closing bell.
Calgary-based Birchcliff's scheduled corporate update on Thursday outlined upsized spending plans aimed at smoothing out inflationary and supply chain pressures, but with no expected increase to annual production.
Toronto-listed shares fell 7.48 per cent to $10.91 as at 10:52 a.m. ET, erasing a more than five per cent gain in the previous session. Like many in the oil and gas sector, Birchcliff's stock has been a strong performer in 2022, up more than 82 per cent.
"The lack of an accompanying material production bump for 2022 or 2023 is drawing some negative feedback from investors," Scotiabank Global Equity Research analyst Cameron Bean wrote in a note to clients on Thursday.
In its update, Birchcliff boosted this year's capital spending budget by $80 million to a range of $355 million to $365 million.
"This further capital investment in our business will help to ensure the most efficient execution of our 2023 capital program, and will not increase our 2022 annual average production," Birchcliff chief executive officer Jeff Tonken said in the release.
Bean expects the company won't be alone in announcing higher spending this year.
"Several other producers are likely to bump second-half 2022 capital spending, with minimal production upside, due to the tight services market and rampant inflation," he wrote.
Despite the chilly reception from investors on Friday, analysts are largely positive on the company's value for shareholders. Scotiabank's Bean dubbed Birchcliff "a cash flow machine with potential for further dividend upside in 2023 and beyond" at current strip prices.
Earlier this week, Raymond James analyst Jeremy McCrea predicted "shareholder-friendly items" would be in the cards as Birchcliff delivered Thursday's update.
"Essentially, management is starting its large dividend program, about seven per cent yield, one quarter earlier than expected," he wrote in a separate note to clients on Friday.
On Thursday, Birchcliff announced a special dividend payment of $0.20 per common share to be paid to investors on Oct. 28. As a result of this, and a lower commodity price outlook, it's expecting to end this year with $60 million to $70 million in debt.
Birchcliff previously forecast that it would have a total surplus of $160 million to $170 million as at Dec. 31, and reach its goal of zero total debt in Q4 of 2022.
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
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